India's leading stock market index, the Sensex, has fallen by roughly 7% in the previous five to six months as shareholders worry about a possible US Federal Reserve rate hike following of fiscal stimulus. Stock markets throughout the world, including those in India, have been affected by this anxiety in recent times.
What is causing investors to worry about a rise in US interest rates?
The rate of inflation is one factor that is having an effect on practically every other nation throughout the globe.
Because of what, exactly, is the US Federal Reserve preparing to raise interest rates?
People would have less money to buy residences, vehicles, and enterprises will have a hard time expanding if the cost of loans goes up. Borrowing and spending become more expensive as interest rates rise. Because of this, financial institutions such as central banks or governing bodies boost interest rates.
Increasing interest rates is meant to curb inflation and temper demand by increasing financing costs. All of this is going to reduce demand and, as a result, inflation in the long run.
It is mostly owing to these two factors that the inflation rate in the United States has gone up. Due to pandemic, global supply had got disturbed and the circumstance of constraints which also include temporary closedown due to closure or a shortage of staff. All of these have impacted output inside one way or another.
The rise in US interest rates is bad news for the Indian markets, since it might lead to global investors withdrawing their investment to the reliable and comfortable market economies.
More than $1.14 billion has been taken out of the equities and debt markets by investors from abroad as of the beginning of 2022. (Sources: International Media, Indian express and unknown publications)
Description : There are 45.86 percent of total weight in India's consumer price index devoted to food and beverages, which includes cereals and products milk and products, vegetables, ready-to-eat foods, meat and fish, oils and fats ,and so on of the budget is allocated to unspecified items, the majority of which are related to transportation and communication, health care, and education.
Housing makes up 10%, Indian consumer prices can be extremely volatile because of India's reliance on imported energy, its massive agriculture sector's reliance on unpredictable effects of the country's monsoon rains, and the country's inadequate roads and infrastructure make it difficult to move food goods to the market. It was in 2013 when the consumer price index (CPI) supplanted the WPI as the primary indicator of inflation. (Interest Rate Particularly so)
Despite the fact that interest rates are climbing from the United Nations market, international investors (FIIs) believe that it would be healthier and also more appealing to engage in the US lending market instead of migrating overseas. That's because the US market has a longer history of stable interest rates as compare to Indian lending markets.
Key Red Line; “Although crude oil prices and global inflation remain a worry, the Indian rupee threatens to decline.”
read this also:-